The man at the heart of the European economic storm

German finance minister Wolfgang Schäuble’s term has been defined by the euro zone crisis, and by his uneasy political alliance with German chancellor Angela Merkel, but he is firmly optimistic that Germany – and Europe – will work their way out of crisis

THE VIEW FROM Wolfgang Schäuble’s office in Berlin is a window on history. The grey, hulking finance ministry was built as Hermann Göring’s aviation ministry. From Schäuble’s window, you can see a silver museum on the site of the former Gestapo headquarters, documenting the terror of the Nazi secret police.

In front runs a crumbling remainder of the Berlin Wall, on which is painted “Save our Planet”.

There have been moments in recent years when that appeal could have doubled as a job description for the German finance minister who next month turns 70.

After a life of remarkable highs and devastating lows in politics, his term as finance minister has been defined by the euro zone crisis: a punishing obstacle course of summits and statements, acronyms and arithmetic – all with the aim of rescuing the common European currency and, with it, the world economy.

If Schäuble is feeling the pressure, he isn’t showing it. Instead, he appears tanned and rested after his annual summer holiday on the North Sea island of Sylt.

In his airy office, amid sage-green walls and dark wood floors, he reads the Financial Times at his desk, the silence broken only by the discreet ping of incoming emails.

Perhaps the most defining characteristic about Wolfgang Schäuble in the seemingly endless euro zone crisis is his refusal to join the chorus of crisis Cassandras indulging in what one Brussels official dubbed the “intellectual glamour of pessimism”.

When alarm bells were sounding over Greece or Ireland, Schäuble declined to panic; when the bailout costs ballooned for Germany, he stayed out of the blame game – and won widespread respect among his European colleagues.

“One shouldn’t overrate the crisis,” he says. “People are taking note of the crisis, but they know it’s not the end of the world.”

ODD COUPLE

Schäuble is one half of an odd political match – chancellor Angela Merkel shafted him to take his job as leader of the Christian Democrat CDU party – yet has proven a capable partner in the euro zone crisis.

In public, Schäuble stresses his loyalty to the German leader, though he always makes the point that their good professional relationship is no friendship.

“If the Chancellor and finance minister are not of the same view, the finance minister cannot exercise his role and the chancellor should seek out another,” he says.

As a member of the Bonn generation, Schäuble is an old-school European who finds himself defending both Germany’s European and national interests at the moment in history when they appear to be drifting apart – at least in the eyes of critics, both domestic and foreign.

At home, those opposed to Berlin’s crisis strategy – even within the ruling coalition – say Schäuble and Merkel, by agreeing to permanent bailout funds, have signed Germany up to a lifetime of penury just as it emerges as an economic powerhouse.

Around Europe, meanwhile, critics say Merkel, under Schäuble’s tutelage, has discarded Germany’s post-war European vocation just when the continent needed it most.

The reality appears to be somewhere in between: just as other countries are adapting themselves to a straitened economic future, Germany is redefining itself on the fly to a leadership role that has been thrust upon it, for which many here feel uncomfortably ill-prepared – politically, economically and emotionally.

LIFE IN POLITICS

It is within this narrow corridor of expectation and accusation – at national, European and global level – where Schäuble operates quietly in the background. While Merkel attracts the flak on the front line, reviews for Schäuble from his political peers are almost uniformly positive.

A crucial difference lies in their political styles: while Merkel bases her euro zone strategy on an emotionless, cold-eyed analysis of Europe’s future – unite or die in a globalised world – Schäuble makes the same argument with a passionate eye on the past.

Receiving Aachen’s prestigious Charlemagne prize in May, Schäuble’s acceptance speech framed the euro zone crisis in a sweep of European history from Charlemagne – who first united Europe in the 8th century – to Poland’s Solidarity movement which lit the spark to end Europe’s Cold War divisions. With an eye on the ongoing crisis, he paraphrased Sicilian author Giuseppe Tomasi di Lampedusa: “If everything in Europe is to stay as it is, then much, if not everything, has to change.”

Listening to his rhetorical and historical tour de force, it was hard not to wonder how current perceptions of Germany, and its role in the current crisis, would be different if Germany’s chancellor was named Schäuble and not Merkel.

The Zelig of modern German political life was born in 1942 in Freiburg in Germany’s south-west, near the French border.

He got involved in politics as a teenager and, after studying to be a tax lawyer, entered the Bundestag in 1972. He rose through the ranks of the CDU and, as interior minister, led negotiations for German unification in 1990.

Two events shattered his life: in October 1990 a mentally ill man shot him at an election rally, paralysing him from the waist down. He battled back to public life in a wheelchair as heir presumptive to then CDU leader Helmut Kohl.

He eventually succeeded Kohl in 1998 after the governing CDU was defeated at the polls but subsequently became entangled in a scandal around illegal political donations.

Sensing her opportunity, Merkel, then CDU general secretary, publicly distanced herself from Kohl and Schäuble and won the party leadership in 2000.

Appointing her former boss to cabinet was a daring move by Merkel after her 2005 election win, but in doing so she secured his loyalty and, in the euro zone crisis, gained a finance minister with a wealth of European political experience.

RETURN TO CABINET

Schäuble declines suggestions that he is a “Merkel whisperer” or claims that today’s German finance minister has more influence in Europe than some German chancellors of the past.

“Germany has always had a particular role in Europe because of its geography, size and history – perhaps even more in the unusual situation of the euro crisis,” he says. “All the more reason to have close trust with the chancellor. It works very well.”

An interesting read is a 1994 paper Schäuble co-authored, warning that the European Union had reached a critical juncture. To avoid the EU degrading itself to a free trade zone, Schäuble proposed the creation of an EU core, open to all, to co-ordinate monetary, budgetary, economic and social policy.

In hindsight, it reads as a clear warning against the decoupling of European monetary union from political and economic union. Schäuble is sanguine about what’s happened since.

“As long as a society is prosperous, the willingness for change is, in general, low,” he says. “Crisis and pressure help foster change – that’s why I’m not so pessimistic towards crises.”

He sees the euro zone crisis as an opportunity to concentrate European minds and agree the kind of integration steps considered politically impossible even two years ago.

That hasn’t always found favour with Merkel: she shot down his idea of a European Monetary Fund back in the day when she favoured localised fire-fighting in Greece and Ireland. As the crisis has spread and deepened, however, Merkel’s strategy increasingly resembles that favoured by her finance minister.

From the permanent bailout fund (ESM) to rules allowing EU oversight and intervention on budgets and deficit spending, she has made German participation in crisis-fighting conditional on completing the project of European integration that Schäuble has always championed.

DEMOCRATIC DEFICIT

A process is in train for greater pooled responsibility at European level on financial and economic affairs, but Schäuble admits the democratic control of these new European competences lags behind.

“As long as we have no common budgetary policy, for instance, all decisions need to be negotiated by national governments and democratically legitimised by national parliaments,” he says.

Next month’s ruling from Germany’s highest court – on the ESM bailout fund – is likely to address this lag by assessing the limits of German participation in crisis-era integration under its current constitution. The verdict is unlikely to throw out the ESM. But Schäuble knows that the judges will insist the balance of democratic control in Europe and at national level is preserved.

“Whoever wants to change this has to transfer more power to Europe. And then the role and character of European institutions will change also. The more pressure [for change], the faster things happen,” he says. “This is part of the question on which the German constitutional court is deliberating now. I’m convinced that the ESM meets the standards of our democratic system.”

Outside Germany, some critics have focused on the rise of intergovernmental agreements in the crisis. This approach to European politics is one that critics say favours larger states at the expense of smaller members. They believe their interests are more fairly represented in Brussels by the traditional community method, overseen by the European Commission.

This concern lingered over a recent poll for this newspaper, suggesting that 69 per cent of Irish people felt Germany was playing a dominant role in the crisis. Schäuble agrees – to a point – but suggests the current approach is a necessary evil if EU reform is to keep pace with the crisis.

“The key to the community method lies in the willingness of people – in Germany and in Ireland – to hand over sovereignty to the EU and the readiness to change treaties,” he says. “That readiness is limited. In Germany the readiness is less limited because of our history. It is more limited in other countries due to history or traditions.

“I don’t particularly like the inter-governmental method,” he added, “but if I have a currency union with a single monetary policy, I also need some form of common economic and budgetary policy. As long as we haven’t pooled responsibility for that, we have to move things on at inter-governmental level.”

There is a Brussels bromide that, unless Berlin and Paris agree, nothing moves forward in the EU. In the years of the “Merkozy” alliance, Schäuble suggests it was often Berlin’s role to rein in the energetic former French president Nicolas Sarkozy from racing ahead without consulting others.

“French politics is often more self-confident then German politics due to the catastrophe in the first half of the last century,” he says. “But I am also someone who always says we have to take note of the smaller partners in Europe. And we do. We are in constant contact with all of our partners.”

Inter-governmental deals are the method of necessity rather than choice for Schäuble. He says the fiscal treaty, as an intergovernmental deal, still falls short of the unanimous standard required for game-changing European reform.

“If we want to strengthen institutions for the euro zone, which may be necessary, some other European member states will not want that we open a greater gap between us and [those not in the euro zone],” he says. “So once again, we are up against those who have greater reservations against further integration.”

A third problem is how, when a post-crisis Europe structure is finally agreed, to enthuse voters to back sweeping changes to national sovereignty that many will view as dry, technical matters.

FUTURE AMBITION

In his Aachen speech in May, Schäuble floated the idea of sexing up European politics with a directly-elected European president.

“If we were to have a presidential election in Europe, it would be an event that would spark a huge interest in people from Lisbon to Helsinki, just like national elections,” he says. “And it would create a completely different political setting in Europe.”

Schäuble admits the proposal won’t be realised in time for the 2014 European elections, as suggested in Aachen. But the last CDU party conference backed a motion calling for a European president.

“I used to say this proposal for a European president had 27 natural opponents – the national leaders,” he says. “Today it’s different. The CDU and its leader, who is our chancellor, are in favour and the idea’s gaining support here and will elsewhere.”

He dismisses any idea of filling the role himself, just as he plays down expectations that he will eventually succeed Luxembourg’s Jean-Claude Juncker as head of the Eurogroup of finance ministers.

“I’m going to be 70 next month. I don’t think that is a question that arises for me,” he says. “The presidency of the Eurogroup is an interesting and important task but let’s remember that Germany didn’t start the debate about who should take that role. It was Jean-Claude Juncker himself, against my advice, who said he didn’t want to continue.”

Schäuble refuses to be drawn on whether, despite his protestations, he will eventually succeed Juncker, perhaps next year.

“At the moment, he is the president. And we have talked about it and agreed quickly that each of us wishes that the other should do it.”

Even with his qualifications, such a role would be a considerable burden on one half of a double act not short of work on the domestic front.

While Merkel’s hands-off leadership style allows critics in her party to vent their frustration – of Greece or bailouts in general – it usually falls to Schäuble to intervene after the more egregious ventilations against Greece.

TOUGH NEGOTIATOR

But, as head of a ministry that itself has an increasingly hardened view of Athens, Schäuble has proven a tough negotiator with Greece. He has threatened to cut off funding to Athens in the past. Today he insists the programme will remain alive as long as it is “the best solution for Greece and Europe”.

“The final goal is sustainable stable economic development in Europe,” he says. “If we do things that overwhelm Germany’s economic potential in the view of the markets, then Europe is weak as a whole.”

This strategy of hard-nosed empathy has defined Berlin’s dealings with Ireland, too. For months, Taoiseach Enda Kenny and Minister for Finance Michael Noonan have lobbied Schäuble for relief on Ireland’s €64 billion banking debt burden. Recent events have, they believe, strengthened their hand: positive troika reports; the passing of the fiscal treaty referendum; and the positive reaction of markets to Irish bond market auctions.

The final piece of the puzzle, in Irish eyes, was agreement of EU leaders and finance ministers that Ireland receive concessions equivalent to any debt burden-sharing deals agreed for Spain or others. Irish officials insist that, even if EU political agreements from June and July don’t explicitly state it, leaders have committed to a political deal in October.

After a meeting with Noonan last month, a spokesman for European Central Bank president Mario Draghi said the position on burden-sharing was “evolving” and would be “reflected in the Irish adjustment programme”.

CONFIDENCE

The German position on this appears, at best, to be definitely maybe. They see the onus on the Irish side to present a technical proposal in the coming weeks for further assistance from the bailout funds that scares neither markets nor taxpayers in donor countries.

“We will have to avoid generating a headline like ‘Aid programme for Ireland topped up’ because then investors in California or Shanghai might not understand that this top-up is a reward for Ireland, but might be tempted to conclude that what was agreed two years ago for Ireland was not enough – and that is surely not what we want,” says Schäuble.

“The decisive point is: we cannot do anything that generates new uncertainty on the financial markets and lose trust which Ireland is just at the point of winning back.

“Naturally we want to help each other but I am not yet convinced by any means that some of the measures which are mentioned would not have the opposite effect. We will talk about this again.”

He denies that a final decision on debt relief for Ireland rests on a thumbs-up or down from Berlin, making it difficult to gauge whether his caginess is a negotiating position or based more on the widespread view in Germany that Ireland is, and has to remain, a programme success story.

Schäuble agrees that Ireland’s success is “incredibly important” for Germany’s own crisis-fighting philosophy – austerity works. But the atmosphere tenses somewhat when Schäuble hears one argument circulating in Dublin: that his coalition, facing re-election in a year’s time, needs an Irish success story to sell to its bailout-weary voters as much as Ireland needs a break.

“It’s not about the German federal elections,” he says. “We don’t want that Ireland [is] doing worse but that the winning back of trust continues. That is the measure of all decisions we will take.”

The crucial part of the euro zone narrative, often forgotten in Dublin, is that Ireland is but one part in an engine where even the largest parts are in motion, such as the crucial relationship between the German government, its central bank, the Bundesbank, and the ECB.

BUNDESBANK

The Bundesbank is furious at plans to establish bond-buying as a permanent tool of ECB monetary policy, viewing it as dangerously close to state financing outlawed by ECB rules. But Berlin appears to have embraced the ECB’s pragmatic proposal as a suitable way of easing financing pressure on crisis-hit Spain and Italy.

Both Merkel and Schäuble welcomed Draghi’s remarks to do “whatever it takes” within the bank’s mandate to support the euro.

The finance minister concedes it was a highly unusual break with the Berlin tradition of not commenting on independent institutions. Significantly, no such words of support have crossed his lips of late for the Bundesbank.

“It is claimed in some quarters the ECB is breaching its mandate; I don’t see that,” says Schäuble. Asked about the protestations of Bundesbank president Jens Weidmann, or talk of divisions between Weidmann and Draghi, he reverts to the no-comment rule.

“If governments start criticising independent institutions, it is a breach of this independence,” he says. “Thus we do not comment on independent institutions.”

What of the resentment in Ireland on burden-sharing – that the ECB may allow Spain leeway on its bondholders not open to Ireland at the time of its bailout?

This is a tricky issue in Berlin, but the view is that it is an option because Europe is better equipped now than it was in 2010 to contain the possible financial market contagion of such a move.

Schäuble dismisses another argument of Berlin critics: that its interest in bailouts, beyond securing the euro and economic stability, is to repatriate German capital invested in crisis countries.

“I don’t see this is a primary interest for our policies,” says Schäuble. “Our primary goal is to stabilise the currency as a whole and to overcome the loss of trust in parts of the euro zone among investors.

“And it might be useful here to look at who was most involved in private-sector involvement – haircuts – for Greece: it was the German taxpayer.”

It’s worth pointing out that many German banks which enjoyed Ireland’s light-touch boomtime regulation were eventually bailed out in Germany: consider the €150-billion-and-counting nationalisation of Depfa and its German owner, Hypo Real Estate; the wind-up of WestLB after a €17 billion bailout.

Despite the high cost of the crisis, Schäuble is confident he will see it off and European people will, too.

“Despite all frustration over Greece,” he says, “we have a common history and cultural exchanges going back millennia.”

Read the full transcript of the Schäuble interview on irishtimes.com

IN HIS OWN WORDS SCHÄUBLE ON . . .

The euro zone crisis: "People are taking note of the crisis and take it seriously, but they know it's not the end of the world."

Fears of German dominance in Europe:"I am also someone who always says we have to take note of the smaller partners in Europe."

A debt deal for Ireland:"We cannot do anything that generates new uncertainty on the financial markets and lose trust, which Ireland is just at the point of winning back . . . I am not yet convinced by any means that some of the measures which are mentioned would not have the opposite effect.

"It's not a question of a yes or no from Germany but what is the right solution. And by the way, this is not only true for Ireland but also with other countries."

Resistance to greater European influence in domestic affairs:"As long as a society is prosperous, the willingness for change is in general low. Crisis and pressure help foster change – that's why I'm not so pessimistic towards crises."

A directly elected president for Europe:"If we were to have a presidential election in Europe it would be an event that would spark a huge interest in people from Lisbon to Helsinki."

Succeeding Jean-Claude Juncker as Eurogroup president:"We have talked about it and agreed quickly that each of us wishes that the other should do it."

What can be done about Greece:"It makes little sense to speculate about Greece today, which is in a really difficult position.

We'll wait for the report and, together with Greece, then have to find solutions that create lasting market trust in the euro zone."

A GERMAN COMPLEX

Ireland’s relationship with Europe’s powerhouse

Starting tomorrow in The Irish Times, a week-long series on Irish/German relations, against the backdrop of the eurozone crisis

The German Complex looks at the unique relationship between our two countries, and at how we’ve become intertwined like never before. What do the Germans really think about the Europe-wide crisis, and how do they view us? What influence are their Eurosceptics having, and will Germany’s new found self-interest challenge the new Europe?